Should executives include an arbitration clause in their employment contracts? There’s no uniform answer, of course. Arbitration proponents cite its speed, cost, privacy, informality, minimal discovery, and limited appellate rights. Opponents cite pretty much the same list. Volumes have been written about whether arbitration is a better form of dispute resolution than litigation, and we can’t resolve that question here.

But thanks to relatively new state laws requiring public disclosure of certain arbitration information, we can look at the question statistically. Even better, people who understand statistics can look at the question statistically, and we can report what they say.

We started by looking at the data set disclosed by the American Arbitration Association (AAA) concerning employment-based arbitrations. (A detailed explanation of the data, and the data itself, is available on this page of the AAA’s website.) One field of the data reports the employee’s salary in four categories: $250,000 or greater; $100,000 to $250,000; $0 to $100,000; and, regrettably, “not provided by parties.” Over the past five years, the AAA database reports about 7700 employment arbitrations (not necessarily separate “cases”; some cases have multiple records, usually reflecting multiple respondents), but only 2912 of these included data for the employee’s salary range. The following table shows the breakout of records by salary range:

We’ve writtenfrequentlyaboutthelong-standing practice in the corporate world of including mandatory arbitration clauses in employment contracts. Specifically, we’ve pointed out that although the practice may make sense for the employer when it comes to deterring potentially costly lawsuits brought by employees, those equities can shift when it concerns upper-level executives who generally have more means and wherewithal to fight a prolonged legal battle, be it in court or in front of an arbitrator.

In those cases – what we here at Suits by Suits consider our bread-and-butter cases – the employer may want to think twice about binding arbitration due principally to the risks of being stuck with an almost entirely unappealable adverse ruling; we’ve previously discussed how this has turned out poorly for employers such as Merrill Lynch and BDO.

Today, we continue to beat the drums of caution for both sides in our examination of a recent Texas appellate decision that makes it clear that many courts are looking for any way to kick a case out of the legal system in favor of arbitration. Read More ›

There’s a famous aphorism in journalism: “When a dog bites a man, that is not news, because it happens so often. But if a man bites a dog, that is news.”

The same is true of arbitration awards. When a federal court confirms an arbitration award, it isn’t newsworthy, because that’s what everyone expects will happen. But when a court tosses an arbitrator’s decision, it creates headlines.

On October 28, the Fourth Circuit made news by vacating an arbitration award issued to a former employee of an accounting firm. Kiran M. Dewan, C.P.A., P.A. v. Walia, No. 12-2175 (4th Cir. 2013). The former employee (Walia) was a native of Canada on a work visa who joined the Dewan firm as an accountant. When he was terminated, he signed a release in which he gave up any tort or contract claims he had against the company in exchange for a payment of $7,000. Three months later, the firm filed an arbitration against Walia, alleging that he had violated noncompete and nonsolicitation provisions in his employment agreement. Walia filed counterclaims alleging that the firm underpaid him in violation of visa regulations, breached his employment agreement, and fraudulently sought to withdraw its sponsorship of his visa. The arbitrator found that Walia’s release was legally enforceable, but also found that Dewan (the president of the firm) brought baseless claims and purposely sought to injure Walia’s immigration interests. As a result, the arbitrator awarded Walia over $450,000.

In the build-up to its decision, the Fourth Circuit recognized the dog-bites-man principles of confirming arbitration awards. It wrote that under the Federal Arbitration Act, “the scope of judicial review for an arbitrator’s decision is among the narrowest known at law because to allow full scrutiny of such awards would frustrate the purpose of having arbitration at all—the quick resolution of disputes and the avoidance of the expense and delay associated with litigation.” The Federal Arbitration Act and the common law only allow an arbitration award to be vacated when

the award was “procured by corruption, fraud, or undue means”;

there was “evident partiality or corruption” in the arbitrators, or either of them;

the arbitrators “were guilty of misconduct”;

the arbitrators “exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made”; or

“an award fails to draw its essence from the contract, or the award evidences a manifest disregard of the law.”

In other words, to vacate an arbitration award, a party must show that the winning party bought the award; the arbitrators were crooked or obviously biased; the arbitrators botched the arbitration to such a degree that a final and definite award wasn’t even made; or the arbitrators didn’t follow the contract at issue and/or disregarded binding law. Read More ›

That’s a straightforward question, and the Virginia Supreme Court has given a rather straightforward answer: yes.

The question came up in Schuiling v. Harris, which we noted as coming over the transom but bears a little more scrutiny. Initially, let’s set aside some of the curious facts about this case. It’s not too curious that the plaintiff, William Schuiling -- owner of a collection of car dealerships in Virginia -- hired a housekeeper, Samantha Harris. It is a bit unusual, however, that Schuiling had his housekeeper sign an arbitration agreement as part of her employment – and that the agreement only addressed arbitration, and no other conditions of employment, such as how socks were to be folded or dusting the ceiling fans. It’s also odd that whatever happened in the employment relationship between Schuiling and Harris was pretty serious: it led Ms. Harris to file a “10-count complaint against Schuiling alleging multiple torts, statutory violations, and breach of contract,” as the Virginia Supreme Court explained – giving no details of the underlying allegations. Read More ›

As we have noted here before, the first battle in a legal dispute between a company and its former executive is often over whether the dispute will be decided by a judge (and, ultimately, a jury) or a private arbitrator. Field v. BDO underscores why the stakes for that battle are so high: if you don’t like the arbitrator’s decision, you almost certainly will be stuck with it. That’s because the standard that courts apply in reviewing arbitrators’ decisions – even decisions about what the law requires – is a very forgiving standard. By contrast, the standard that appellate courts apply in reviewing trial judges’ decisions is less forgiving, which means that losers in the courts have a better shot at reversing decisions they don’t like than losers in arbitration. Read More ›

One approach is for the employee to argue that the employer has waived his or her right to arbitrate because the employer has “acted inconsistently” with the right to arbitrate claims. We looked at the legal basis for this argument (as well as indulged in some trash TV) in a two-part series just a few months ago. (Part one, Part two)

Another approach is for plaintiffs to challenge the clause as unfair. The argument goes something like this: for many employees – although typically not executives – the employment contract is presented on a “take it or leave it” basis; that is, it is a contract of adhesion over which the employee has little to no ability to negotiate particular provisions. Accordingly, if an arbitration provision is drastically unfair to the employee, the court can strike it down under the doctrine of “unconscionability,” which permits a court to throw out a contractual provision that is so one-sided as to be “unusually harsh and shocking to the conscience.”

In our last installment, we described a dispute between CBS, on the one hand, and three former producers of the CBS show Big Brother, on the other, in which the former producers argued that CBS had waived its contractual right to arbitrate by spending months pursuing litigation against the former producers before demanding arbitration. Because many employment contracts have mandatory arbitration clauses, the possibility of waiver must be on the radar screens of parties to an employment dispute. We discussed the flipside of this issue, arbitration by estoppel, in July.

The threshold question is whether the party seeking arbitration acted inconsistently with the right to arbitrate. Read More ›

The three former Big Brother producers - Corie Henson, Kenny Rosen and Michael O’Sullivan – eventually wound up working on the production of ABC’s The Glass House, which CBS has called a blatant rip-off of Big Brother, and which aired last summer. Before it aired, in May 2012, CBS sued ABC and the three former producers in federal court in Los Angeles. The former producers had signed non-disclosure agreements (NDAs) with CBS in connection with their work on Big Brother. CBS sought to temporarily restrain ABC from airing the first episode of The Glass House, claiming that ABC and the former producers had violated CBS’s copyrights and misappropriated its trade secrets in the production of the show. CBS also claimed that the former producers violated the NDAs by disclosing confidential information and trade secrets relating to technical, behind-the-scenes aspects of filming and producing Big Brother. Read More ›

Additionally, arbitration clauses can favor the employer where the employee is required to share in some (or all) of the costs of the arbitration by discouraging plaintiffs who would otherwise have been able to secure plaintiffs’ counsel on a contingent fee basis for a trial by jury. (Note that courts continue to grapple with this issue, and many courts have determined that if an arbitration clause would unduly burden a plaintiff from exercising his or her legal rights, that arbitration clause is invalid and the plaintiff is free to litigate in court instead. See, e.g., Ball v. SFX Broadcasting, Inc., 165 F. Supp. 2d 320, 238-40 (N.D.N.Y. 2001) (discussing cases).